Malaysian firms SapuraCrest Petroleum and Kencana Petroleum will merge in a $4 billion deal to create a larger, more integrated oil and gas services firm, which is better placed to compete both domestically and across Asia.
Integral Key, a special purpose vehicle (SPV), will buy the Kencana business for M$5.97 billion ($1.97 billion) and the SapuraCrest business for M$5.87 billion. The deal will be settled through shares of Integral Key and cash. The price translates to M$3 for each Kencana share outstanding and M$4.60 for each SapuraCrest share. On Friday, the last trading day before the deal was announced, Kencana traded at M$2.80 and SapuraCrest at M$4.50 on the Bursa Malaysia. Integral Key intends to subsequently delist both companies from the stock exchange.
"The merged entity will be in a strong position to undertake larger and more complex projects, thus significantly improving business prospects," said Integral Key in a written statement. The new entity will be the largest oil and gas services provider in Malaysia.
The rationale for the merger is compelling as the new company will have enhanced scale and resources capabilities, said a source close to the transaction. He also noted that the deal is in line with the government’s economic transformation programme.
The merger will give a substantial league table boost for three local M&A advisers involved in the deal, as well as Credit Suisse. Integral Key is advised by CIMB and Maybank. Kencana is advised by Credit Suisse and AmInvestment Bank.
The structure being used to effect the merger — the sale to an SPV — was previously used in Malaysia in 2007 for the merger of Sime Darby, Guthrie and Golden Hope into a vehicle called Synergy Drive, which was subsequently renamed Sime Darby.
One advantage of this structure is that the controlling shareholders of the companies being merged, in this case SapuraCrest and Kencana, are allowed to vote on the proposal. As the vote needs to be approved by 75% of shareholders, this is a useful starting point. Around one-third of Kencana is owned by a son of former Malaysian prime minister Mahathir Mohamad and about 40% of SapuraCrest is owned by Shahril Shamsuddin, founder of the Sapura group.
This is truly a merger of equals, according to the source. The new company will be jointly managed by both partners, but precise details have yet to be ironed out, he added.
Analysts generally commented favourably on the development, agreeing that the new company will benefit from scale.
The offer by Integral Key will close by mid-August, but the deal will still take a few months thereafter to reach final close, said the source.
